House Prices: Strong Supply with Demand to Fall

In the first half of 2019, the annual growth rate of house prices accelerated to some extent at national level, while in Budapest, the annual dynamics slowed down from 24.8% to 22.5%, the National Bank of Hungary (MNB) reports. Although, the currently strong housing market demand is supported both by home starter programs and the favorable economic and financing environment, the decline in housing transactions in Budapest in parallel with the introduction of the Hungarian government bond MÁP+ may indicate a decline in investment demand. New home completions may peak in 2019 at 19,800. From 2020-21, supply is expected to fall, due mainly to strong cost-side pressure and the increase in VAT to its previously higher rate. New housing supply is unable to keep pace with demand, the renewal rate of the housing stock in Budapest is still very low.

In the first half of 2019, the annual growth rate of house prices accelerated to some extent at national level, while in Budapest, the annual dynamics slowed down from 24.8% to 22.5%, the National Bank of Hungary (MNB) reports. Although, the currently strong housing market demand is supported both by home starter programs and the favorable economic and financing environment, the decline in housing transactions in Budapest in parallel with the introduction of the Hungarian Government Security Plus (MÁP+) may indicate a decline in investment demand. New home completions may peak in 2019 at 19,800. From 2020-21, supply is expected to fall, due mainly to strong cost-side pressure and the increase in VAT to its previously higher rate. New housing supply is unable to keep pace with demand, the renewal rate of the housing stock in Budapest is still very low.

In the first half of 2019, Hungarian house prices continued to rise. In the second quarter, the annual growth rate of house prices amounted to an average 17.1% at a national level, exceeding the 16.3% recorded at the end of 2018. In Budapest, however, price dynamics slightly declined from 24.8% at the end of 2018 to 22.5%. According to preliminary data for the third quarter of this year, the growth rate of house prices continued to decline in Budapest and also decreased on average nationwide.

According to the report, the demand side of the Hungarian housing market continues to be supported by high employment, increase in real incomes, a high level of savings and a low interest rate environment. Despite that, in the first half of 2019, the number of housing market transactions in the capital dropped by a significant 29% year-on-year, mainly reflecting a major downturn in the second quarter. This may also have been due in part to the high number of preliminary contracts made in recent years in the market of new homes, which will appear in transaction statistics only later. In Budapest, a slight increase in the median bargain and the median time on the market of flats may also point to a decline in demand. According to the Housing and Real Estate Market Advisory Board, the launch of MÁP+ may also explain the falling demand for residential property through investor interest. The number of transactions stagnated in rural towns and increased by 6% in villages year-on-year, indicating sustained demand in rural areas.